Urban market becomes cramped, banks flock to rural areas

VietNamNet Bridge – Banks have been stepping up the lending to the agriculture sector and rural areas. Developing the rural market is considered “a stone that kills two birds”, because this allows to push up credit, while this can help develop the agriculture and rural areas as requested by the State.

The representative from Lien Viet Bank said that the credit package, applied to rural clients has been attracting a lot of clients. The lending interest rates of the package are 1-1.5 percent per annum lower than the lending interest rates applied to non-production sectors. Some other bankers have confirmed that they have been pushing up the lending to the clients in agriculture and rural areas, having loosened the requirements on clients, while applying easier disbursement procedures. Nguyen Duc Huong, Deputy Chair of Lien Viet Bank, said that in fact, the bank has been providing capital to agriculture and rural areas for a long time, but the lending has been stepped up recently. Huong himself once worked for the state owned Vietnam Bank for Agriculture and Rural Development and he well understands the great potentials of the clients in rural areas. Huong also said that other banks have also shown their interest in the rural market, because they have realized the great potentials of the market. Lending in rural areas is a kind of “lending with the right hand while collecting debts with the left hand”. Banks act as the intermediary between farmers and enterprises. It lends to farmers and collects debts from enterprises, because farmers sell their products to enterprises. Therefore, banks not only collect debts in Vietnam dong, but also in foreign currencies as well. “Rural areas prove to be a market with great potentials,” Huong said. “Moreover, lending to clients in rural areas is a kind of “putting eggs into different baskets” to disperse risks”. He went on to say that contrary to people’s thoughts, lending to rural clients has low risks, because the loans are small and not concentrated. At present, the bank’s outstanding loans to agriculture and rural areas are nearly equal to 50 percent of other kinds of credit. The currently applied interest rates applied to Mekong Delta are really competitive which are lower than that offered by state owned banks. An executive of a bank headquartered in Hanoi, said that the bank has launched the credit package reserved for agricultural production and export, with the preferential interest rates which are lower by 2.5 percent per annum than the normal rates. The executive has also revealed that the outstanding loans provided to agriculture and rural areas now accounts for 10 percent of the bank’s total outstanding loans, which is double the proportion in the past. Le Duc Tho, Deputy General Director of VietinBank, also thinks that currently, when the State tightens the monetary policies and restricts the lending to real estate and securities investors, the clients in agriculture production and rural areas could be seen as a good alternative. By lending money to agriculture and rural areas, banks can push up credit, though the profits in the lending sector is lower than the profits in the lending to non-production sectors. Dang Tuyet Dung, Banking Services and Personal Finance Director of Techcombank, said that the bank does not intend to develop the credit to rural areas, but it is also considering applying policies on providing loans to certain areas, including rural areas. In general, banks do not pay much attention to the lending to rural areas, because the projects in the areas are small (each of loan is worth just tens of millions dong), while the management costs are high. However, due to the limitations set on the lending to non-production sectors, banks have to seek clients from other areas, including rural areas; which allows them to fulfill the credit and profit plans.